Wait! Don’t Pick Harvard Just Yet!

July 25, 2007 by Marcel

Over the last decade or so, undergraduate degrees have changed from a differentiator to a near requirement in most business settings. That’s not to say the degree is worthless, however. Those with college degrees can expect to earn nearly 80% more than their high school counterparts. But in a business setting, the degree no longer sets you apart from nearly every person you work with who also has a college education.

Now, many are turning to MBAs to get that extra ‘edge’ over the competition. But there are several questions to be answered before selecting a school and program such as “Should I pick a top ranked school?” or “Which type of program will deliver the best results.” The Graduate Management Admission Council (GMAC) set out to answer these questions in a December 2006 research report titled Examining the Value Added by Graduate Management Education. A few of the things I found interesting:

The overall return on investment (ROI) for an MBA is 177%

The amazing thing about this number is that they only assumed a person would work for 10 years after obtaining their MBA. So for those that are receiving their MBA at a young age, this number jumps dramatically. The payback for the average MBA is 4.5 years.

The ROI for a top 10 school is dramatically lower than other schools

Although the net increase in salary is a bit higher for those graduating from top 10 schools, the total cost of the top 10 schools is dramatically higher. The ROI for top 10 schools came to 118% while their non top 10 counterparts came in at about 185%.

A part time MBA program gives a better ROI than full time or executive MBA programs

The biggest factor for a small return on the full time MBA program is the cost. The average cost of the full time program is nearly four times the cost of the part time or executive MBA program. As for the executive MBA program, the lower ROI as compared to the part time programs is due to the higher salaries of the executive MBA program participants. This is because students in the executive MBA program tend to be more experienced (i.e. executives.)

Public schools beat private schools in ROI

The total cost of the private schools in the report came in almost 40% higher than that of the public schools. This overwhelmed the fact that those coming from private schools tend to generate a higher salary.

From the results of the survey, it appears that obtaining an MBA is a good idea (financially speaking) no matter where you get it from. However, the higher price of private schools (especially those that are top ranked) do not fully equate to an equally higher salary. Unless you are in a position that you absolutely must have an ivy league diploma on your wall, you may be better off looking at less expensive alternatives.

19 Comments so far »

plonkee money » 111th carnival of personal finance - glastonbury edition said

am July 30 2007 @ 4:24 am

[...] wait! don’t pick Harvard just yet @ financial dominance, calculating the return on investment of an MBA [...]
111th Carnival of Personal Finance is Up at FinancialDominance.com said

am July 30 2007 @ 8:32 am

[...] at plonkee money and read a few. Also take a look at my entry for this week where I talk about the return on investment of an MBA.Share [...]
KMull said

am July 30 2007 @ 11:42 am

News to my ears! I’m starting a part time MBA program next week.
Personal finance at KMull.com said

am July 30 2007 @ 11:51 am

[...] Life. Are you stuck in the rat race? Why? Financial Dominance really caught my attention with the return on investment from MBA programs. Should you really go to Harvard? An interesting take on budgeting with The Baglady [...]
Patrick said

am July 30 2007 @ 9:59 pm

I agree w/ KMull… I plan on starting my MBA soon as well, and I’m glad I will attend a program that will allow me to work full-time while getting my MBA. My ROI should be a little higher because you won’t have to factor in lost income during the time classes are taken.
Cash Money Life - A Personal Finance Blog with a Salute to the Military » 111th Edition of the Carnival of Personal Finance said

am July 30 2007 @ 10:08 pm

[...] Wait Don’t Pick Harvard Just Yet! Financial Dominance calculates the ROI (Return on Investment) of an MBA and wonders if Harvard or another top tier school is worth the cost vs. going to a less expensive alternative. [...]
Best Personal Finance articles from Carnival of Personal Finance #111 at Clever Dude Personal Finance & Money said

am July 31 2007 @ 11:22 am

[...] Financial Dominance highlights something I’ve expected for a while; Public schools are part-time masters programs are better than top-name schools for MBA degrees. Read “Wait! Don’t pick Harvard just yet!“ [...]
Patrick said

am August 8 2007 @ 2:10 pm

A mere week and a half later, I am thinking about reversing course and going to a full-time MBA program… Decisions, decisions… We’ll see!
Thinking About Ditching School? Think again. - FinancialDominance.com said

am August 17 2007 @ 6:05 am

[...] wrote a couple of weeks ago about the value of a college education and how a degree is almost mandatory for many white-collar employers. In many cases it is not [...]
January said

am September 5 2007 @ 8:45 am

I have been thinking of going for postgraduate studies overseas especially in Scotland. Here in Nigeria, you cannot afford to attend relatively unknown schools even if they’re cheaper or more affordable. Employers of labour prefer postgraduate degrees from the U.K. and North America. While I’m not studying for an MBA, I’m certainly thinking of studying for a masters. Thanks for the info.
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Sorry, it just sounds like a crazy idea for me :)…
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There are number of service providers and academicians offering high-quality courses for professionals and student. This is the best way to get an education that helps successfully step in to our career.
Jaque said

am April 27 2008 @ 8:50 am

I am glad to find out that I took a good decision about sending my children to a public school.
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am September 13 2008 @ 5:46 am

One of the best things about the development of MBA programs in recent years is the opportunity to focus on a specific discipline within the program. I know some of our local schools offer MBAs geared toward CIOs, CFOs, CMOs and more. These programs help to wrap the overall business mission around the job function- very valuable.
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